The Simplest Way to Secure Growth Financing in Record Time
Updated: Mar 6
Photo by Priscilla Du Preez on Unsplash
Some people think business cash advance is a relatively new financing tool. Actually, I have used it for my clients for decades. It is sometimes called merchant cash advance or MCA. You see it used frequently, for growing businesses that are highly capital intensive.
I used it recently for an espresso bar owner that needed to buy new equipment and complete a build-out. Like many newly formed ventures, their financials were not that strong. The partners that owned it divided the profit and took out their earnings in the form of wages. They also had a lot of personal expenses which they recorded to the business. In short, they did not show a strong history of profitability, which is common for small businesses to try to manage their income taxes. They did not have the financial statements to qualify for traditional financing.
Here is how I arranged for them to get a merchant cash advance of $80,000.
The merchant cash advance companies gave them the full amount up front with a fee added into the principal balance due. So, in other words, they received $80,000 and had a repayment of an additional 20% on top of that so now they owe $96,000. There is no fixed repayment term where a certain amount per month is due. Instead, a certain percentage of the cafe’s credit and debit card terminal sales are deducted each month until the entire amount is paid back.
That is how it works.
The lender will ask for a portion of your sales for that credit card terminal which they arrange to have sent directly to them. So, if you're doing $40,000 a week in credit sales, the cash advance lender could ask for 5% of those sales, which equals $2,000. They will continue to collect that money until they have received the full repayment of their loan plus the additional fee.
Cash advance lenders have two main concerns:
What is the average run rate for monthly credit card sales? You will need to verify these by providing statements reflecting your historical volume.
And number two, what is the remaining term of your business lease, to make sure there is sufficient time remaining for your business to operate and repay the loan in full.
Once they can get comfortable with your situation, you can get the capital in a matter of days.
It is simple and quick, but it is not cheap. As you have surely heard before, there are three trade- offs in most things and especially in the lending world - capital can be reliable, fast and cheap but not all three. You can pick two, but you can never have all three.
In this case the cafe owner received financing quickly and from a reliable lender, but it was not inexpensive. Because they borrowed money upfront but then a week later they began paying back part of it, the cost of capital was more expensive than a conventional loan. This is something I always disclose up front.
This was really the only way these restaurant owners and many small businesses have access to any kind of capital. It is unsecured, so you don't need any kind of collateral to actually secure the debt. You do not need a stellar credit score either, generally 500 or better is all you need. And it is easy to qualify for if you can show consistent income in your business for about six months or longer without a lot of chargebacks.
If you want to learn more right now, reach out to me and we will start the process of getting you approved for a merchant cash advance.
Merchant cash advance is only one of many different funding options that we have here, so by talking with us, you may actually find two, three, four or more different programs that you can qualify for.
Matt Ridge
(510) 600-2614